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Why do macro wage elasticities diverge?

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  • Kees Folmer

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    Abstract

    This study analyses macro wage elasticities on labour productivity, payroll taxes, average and marginal income tax, consumer and producer prices, the replacement ratio and the unemployment rate. The data have been analyzed in a meta analysis that relates differences in each elasticity of pay to variations in study characteristics, economic or institutional variables and the econometric specification of underlying wage equations. The results indicate that notably the econometric specification of the reported wage equation matters. The dynamic specification, the choice of explanatory variables and restrictions on estimated coefficients all have their impact on estimated elasticities. The reported value of the output price elasticity of pay is sensitive to restrictions on the consumer price and vice versa. In case of tax elasticities the dynamic specification matters, and the value of the replacement ratio elasticity of pay based on sectoral data is higher than the one obtained from macro data. The results for the unemployment elasticity of pay are close to those found in the wage curve literature. Finally, we generate benchmark values for each type of elasticity.

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    Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Memorandum with number 224.

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    Date of creation: Apr 2009
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    Handle: RePEc:cpb:memodm:224

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    Cited by:
    1. Kurt Kratena & Mark Sommer, 2014. "Labour Market Policy and Environmental Fiscal Devaluation: A Cure for Spain in the Aftermath of the Great Recession?," WIFO Working Papers 476, WIFO.
    2. Tim Jackson & Ben Drake & Peter Victor & Kurt Kratena & Mark Sommer, 2014. "Literature review and model development," WWWforEurope Working Papers series 65, WWWforEurope.
    3. Peeters, Marga & Den Reijer, Ard, 2011. "On wage formation, wage flexibility and wage coordination : A focus on the wage impact of productivity in Germany, Greece, Ireland, Portugal, Spain and the United States," MPRA Paper 31102, University Library of Munich, Germany.

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